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From the passage of the One Big Beautiful Bill, which left some confused about Social Security taxes, to concerns about whether benefits will shrink in less than a decade, here is a roundup of what happened last month regarding the program and what this means for you.
The ‘One Big, Beautiful Bill’ Confused Beneficiaries
Ahead of the passage of the “One Big, Beautiful Bill,” President Donald Trump said the sweeping tax and spending bill would eliminate income taxes that recipients pay on their Social Security benefits.
However, tax experts say that’s not what the bill does.
Instead, the bill includes a temporary tax break of up to $6,000 for filers 65 and older. It will apply only to individuals with a modified adjusted gross income of up to $75,000, or married couples up to $150,000, which will be phased out at higher incomes.
The Social Security Administration sent an email to beneficiaries applauding the bill’s passage and repeating that it eliminated taxes on benefits, confusing some recipients.
What This News Means For You
The tax cut applies to the overall income tax rate for those who qualify, not specifically to the income taxes on Social Security benefits.
Because of this, it won’t help Social Security recipients who get disability or survivor benefits before turning 65, or those who claim their benefits early. The lowest-earning beneficiaries also won’t benefit from this break, as they already pay no federal income taxes regardless of age, and the highest-earners make too much to qualify for it.
People Are (Still) Concerned About Social Security’s Future
The Social Security Trustees’ annual report in June showed that the trust funds that provide a financial cushion for Social Security benefits are projected to run out by 2034 if Congress doesn’t intervene.
The trust funds are being depleted because the Social Security Administration currently pays out more in benefits than it receives in payroll tax revenue. If the funds run out, beneficiaries would receive only 81% of scheduled benefits.
A recent report showed that about two-thirds of retired Americans say they rely on Social Security “substantially,” while 21% rely on it “somewhat.” Additionally, 67% of Americans view Social Security as more important to retirees than it was just five years ago.
What This News Means For You
When the trust funds that pay out Social Security benefits are depleted, enrollees will be responsible for covering the 19% shortfall that once would have come from the funds.
The Trustees’ report has led Americans to lose confidence in the future of the program, financial advisors to change the advice they give their clients about when to tap into their benefits, and has economists, politicians, and laypersons alike considering solutions to hinder the program’s downward spiral.
Two Senators Proposed Their Bipartisan Plan To Fix Social Security
Senator Bill Cassidy, a Republican from Louisiana, and Senator Tim Kaine, a Democrat from Virginia, presented the proposal to keep Social Security fully funded in an opinion piece published by The Washington Post last month.
The senators proposed creating an additional fund that would be invested in stocks, bonds, and other investments and generate a higher rate of return than the current trust funds, which are exclusively invested in special-issued U.S. government bonds.
Cassidy and Kaine suggested a $1.5 trillion up-front investment to kickstart the fund and give it 75 years to grow. While the Treasury would have to temporarily cover the benefits shortfall, the new fund would pay it back once those 75 years are up and supplement payroll taxes to fill a gap in the future.
What This News Means For You
While it’s reassuring that politicians from both parties understand the importance of saving Social Security, many economists and policy experts don’t believe the program has the time the proposal needs, as it’s expected to be depleted by 2034.
Rather than introducing a new revenue stream to avoid the shortfall, experts expect that Congress will likely fix the shortfall by reducing benefits, increasing taxes, or increasing the overall tax base.
At this point, solutions are speculative as Congress hasn’t made a definitive move toward a particular one.
